India is projected to maintain a robust average annual growth rate of 6.5% over the next decade, according to a recent report by Morgan Stanley. This positive outlook is supported by a well-positioned macro balance sheet, a strong policy framework, fiscal consolidation, and structural advantages like favorable demographics. The brokerage firm anticipates that India's inflation will align with the Reserve Bank of India's (RBI) target of 4%, fostering a conducive environment for borrowing costs and ensuring debt sustainability.
Several factors contribute to Morgan Stanley's optimistic forecast. India's growing population, particularly its young demographic, coupled with the country's efforts to build digital, regulatory, financial, and physical infrastructure, are expected to pave the way for accelerated growth. The report also noted that India is on track to become the world's most sought-after consumer market, driven by a major energy transition and an increased contribution from manufacturing to the GDP.
Furthermore, India's macro balance sheet is well-positioned to support long-term expansion, aided by a robust policy framework, fiscal consolidation, and structural advantages such as demographics. The brokerage expects India's economy to grow at an average of 6.5 percent annually over the next 10 years, with inflation aligning to the Reserve Bank of India's 4 percent target. This backdrop, it noted, would keep borrowing costs favorable and ensure debt sustainability.
However, the report also acknowledges potential challenges. To maintain a stable unemployment rate, India needs to achieve a GDP growth of 7.4% if participation rates remain constant. If participation rises gradually to 63%, the economy would need to grow at an average of 9.3%. Moreover, the increasing influence of artificial intelligence (AI) could potentially slow job growth in IT services and domestic services.
To unlock faster growth, Morgan Stanley suggests a comprehensive reform package that includes accelerated public infrastructure development and improved last-mile connectivity. The report emphasizes India's considerable untapped potential in exports, with its current global market share at just 1.8%. It also recommends a systematic framework to encourage state governments to improve the business climate and ensure adequate skilling of the labor force.
Despite these challenges, Morgan Stanley remains optimistic about India's long-term growth prospects. The financial services firm has modestly upgraded its growth forecasts to 6.2% year-on-year for fiscal year 2026 and 6.5% year-on-year for fiscal year 2027, citing easing US-China trade tensions and strong domestic demand. Domestic demand is expected to remain the primary engine of growth, with policy support continuing through easier monetary policy and prioritized capital expenditure.
Other organizations share a similar positive outlook on India's economic growth. The Asian Development Bank (ADB) projects a 6.5% growth rate for fiscal year 2026. The International Monetary Fund (IMF) has also revised its forecast for India's economic growth to 6.4% for both 2025 and 2026.
Overall, Morgan Stanley's projection of a 6.5% average annual growth rate for India over the next decade reflects the country's strong economic fundamentals, policy reforms, and demographic advantages. While challenges remain, India is poised to solidify its position as one of the fastest-growing economies in the world and a major player in the global economy.
